1. The small cruise ship Hebridean Princess was owned and operated by Hebridean International Cruises Limited (“HICL”). The itinerary of the cruises usually involved the Hebrides and other islands off the Scottish coast. Despite what appears to have been a loyal client base HICL fell into financial difficulty and on 8 April 2009 entered administration. On 22 April 2009 the administrators sold Hebridean Princess to the Claimant, All Leisure Holidays Limited, a company which also runs cruises under such brands as Swan Hellenic and Discover Egypt. That sale disabled HICL from being able to perform the contracts it had entered into with its clients to provide them with cruises on board Hebridean Princess. The Claimant, mindful of the commercial need to preserve the goodwill of HICL’s clients, continued to run the same cruise programme and offered them the opportunity to participate in cruises on board Hebridean Princess but operated by the Claimant rather than by HICL. In return the Claimant required HICL’s clients to claim from the Defendants an indemnity under a Passenger Protection Insurance Policy entered into by HICL on behalf of their clients in respect of the monies they had paid to HICL and to pay the proceeds to the Claimant. In due course the clients assigned their claims against the Defendants to the Claimant. In this action the Claimant, as assignee, seeks judgment against the Defendants for an indemnity in the aggregate sum of £1,971,900.48 in respect of sums paid to HICL in respect of the 2009 cruises which took place after 22 April 2009. The Defendants deny liability.

2. The court has been asked to determine three points of principle. They are:
i) Were the passengers’ cruises cancelled within the meaning of the policy ?

ii) Did the passengers suffer loss within the meaning of the policy ?

iii) Were passengers only entitled to claim under the policy if they had completed a claim form ?

The policy of insurance

3. It is common ground that the policy was taken out by HICL in order to comply with the Package Travel, Package Holidays and Package Tours Regulations 1992 (“the Regulations”) which in turn had been enacted to comply with the Council Directive of 13 June 1990 on Package Travel, Package Holidays and Package Tours. By Regulation 13, where the organiser of a tour cancelled a package before the date of departure, the consumer was entitled to take (a) a substitute package of equivalent or superior quality if the other party to the contract was able to offer such, (b) a substitute package of lower quality if the other party was able to offer one and to recover from the organiser the difference in price between the cancelled and substitute packages or (c) to have repaid to him as soon as possible all the monies paid by him under the contract. By Regulation 16 the other party was to provide security for the refund of money paid under the contract and could do so by the provision of an insurance policy.
4. The policy issued by IPP on behalf of the Defendants was in respect of “Contingency Insurance in respect of passenger compensation.” It was purchased by HICL on behalf of “the insured persons” who were defined as those “persons who had made a payment to HICL with a view to entering into a travel contract with HICL.” The insurance was “to indemnify the Insured Persons in respect of their net ascertained financial loss sustained arising from the cancellation or curtailment of the declared trip travel arrangements arising solely from the event of the insolvency of [HICL].” Net ascertained financial loss was defined as including “loss of deposit or charges paid in advance by the Insured Persons to [HICL].”Events following HICL’s Administration

5. On hearing of the Administration the Claimant, who had previously made an approach to buy Hebridean Princess, approached the administrators and entered into negotiations to purchase the cruise ship. The Claimant agreed to pay the administrators over £300,000 to enable them to operate two cruises scheduled to begin on 9 and 16 April 2009 in return for a 2 week exclusivity period to negotiate the sale. On 15 April 2009 the administrators wrote to passengers advising them that “we are currently not cancelling any scheduled Hebridean Princess cruises.”
6. On 22 April 2009 the Claimant entered into an agreement with HICL in administration to purchase Hebridean Princess for the sum of £1m. By clause 12.8 of the agreement it was agreed and acknowledged that the Claimant had no obligation or contractual duty to provide any cruises which had been booked prior to the completion date, 22 April 2009.
7. On 27 April 2009 the Claimant, trading as Hebridean Island Cruises using the same logo, address and telephone number as HICL, wrote to the passengers informing them that Hebridean Princess had been purchased by the Claimant. The letter continued as follows:
“We are pleased to be able to advise you that All Leisure Holidays Ltd. intends to operate the same sailing that you had booked to cruise aboard Hebridean Princess. If you wish to transfer your booking from Hebridean International Cruises to All Leisure then we will need you to complete certain documents to formalise these transfer arrangements.

…………

We believe that when you booked your cruise with Hebridean International Cruises Limited it provided you with an insolvency insurance policy. That document is called an International Passenger Protection Policy and should have a policy number. The insurance policy allows you as a customer of Hebridean International Cruises to make a claim for all losses you have suffered as a result of the insolvency of the company i.e. all monies you have paid to Hebridean for the cruise. We will require as a condition of the transfer of your booking to All Leisure that you claim under your policy and pay any monies you receive from them to All Leisure Holidays Limited within 7 days of your claim being paid.

If you do not wish to proceed with a cruise provided by All Leisure then you need to notify us of this on the enclosed form by return. You will then be free to pursue your insurance claim and retain any recovery that you make.”

8. The letter invited the passengers to complete an enclosed form which presented the passengers with an option, either to agree to accept the terms of the letter and continue with the booked cruise or to cancel the cruise and apply to the Defendants for a refund. (Slightly different letters were sent to passengers who had paid by credit card or whose trip was ATOL bonded. This claim is not concerned with those passengers.)
9. On 28 April 2009 the administrators emailed the Defendants informing them that “the joint administrators sold the Hebridean Princess and associated assets to [the Claimant] on 22 April 2009. Accordingly HICL is no longer in a position to operate the cruises and the HICL operated cruises are in effect cancelled. Under the terms of HICL’s IPP policy, I understand that IPP requires notification from passengers within 14 days of their being told …. of any potential claims, and therefore you should take this email as notification on behalf of all affected insured passengers.”
10. The evidence of Mr. Jobber, the Chief Operating Officer of the Claimant, was that the majority of passengers chose to accept the terms offered. He was not cross-examined as to this part of his evidence although Mr. Goldsbury, a liability adjuster who has examined IPP’s passenger files and other data said in a written statement that only 33 out of 400 passengers accepted the terms offered before boarding by ticking the acceptance option on the form attached to the letter dated 27 April 2009. It was however common ground that all the passengers were sent a copy of that letter and there seems to me force in counsel’s submission that passengers who boarded Hebridean Princess without having ticked the acceptance option, nevertheless accepted it by their conduct. That is supported by the circumstance that they later assigned their claim under the insurance policy to the Claimant (see paragraph 12 below).

11. Some chose not to go on the cruises operated by the Claimant and pursued their claims under the policy for their own benefit.
12. The Defendants, through their agents IPP, did not accept the claims made by passengers who had gone on cruises operated by the Claimant and in September 2009 the Claimant decided to take an assignment of those claims. There is no dispute that such assignments were effective.Cancellation

13. Unless there was a cancellation of the cruises promised by HICL there can be no claim under the policy.
14. Counsel on behalf of the Claimant submitted that the “declared trip travel arrangements”, namely, the cruises to be operated by HICL, were cancelled on 22 April 2009 when the sale of Hebridean Princess disabled HICL from providing cruises on board Hebridean Princess.
15. Counsel on behalf of the Defendant submitted that, giving the word “cancellation” in the policy its ordinary meaning in accordance with the commercial object or purpose of the clause, the cruises had not been cancelled because they had been performed in every respect as promised, save that the operator was the Claimant rather than HICL. It was submitted that the commercial purpose of the policy was to ensure that passengers were not disappointed by not receiving the promised services and that the Claimant’s approach failed to have regard to the reality of the situation which was that the passengers took the cruises they had booked. In support of this submission reliance was placed on what the Claimant said to the passengers (the Claimant will “operate the same sailing”) and what some of the passengers said when asked to make a claim on their policy of insurance (“I had the holiday which I had booked and paid for”).
16. In construing the word “cancellation” in the policy the court is to give it that meaning which it would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties to the policy, namely, the passengers as the insured persons and the Defendants as underwriters. The background knowledge reasonably available to the parties would include knowledge that the policy had been taken out by HICL on behalf of the passengers to comply with its obligations under the Regulations and in particular its obligation to provide security for its obligation to repay monies paid by the passenger to HICL. That obligation to repay arises where HICL is unable to offer the passenger a substitute package.
17. In that context the word “cancellation” in the policy would, in my judgment, be reasonably understood by the parties to the insurance contract as referring to circumstances where HICL is either unable or unwilling to provide the cruise it had promised to provide, for those are the circumstances in which HICL’s obligation to repay monies paid in advance will arise. Those were the circumstances on 22 April 2009 when the administrators of HICL sold Hebridean Princess to the Claimant. On that date HICL could not perform the cruises it had promised to perform.
18. To say that the commercial purpose of the policy was to ensure that passengers were not “disappointed” by not receiving the promised services, whilst true in a general sense, fails to have regard to the specific matters with which the Regulation was concerned, namely, the need to ensure that when the tour operator was obliged to make a refund there was security for the performance of that obligation. The commercial purpose of the policy was to provide that security. The policy provided an indemnity in respect of financial loss, not “disappointment”.
19. It was observed that there was no communication from the administrators to the passengers informing them that the cruises to be performed by HICL had been cancelled. That is true but I do not consider that in this context express notice of cancellation was required. If it were required the consequence would be that the policy would not be effective security for payment of the tour operator’s obligation to repay monies paid to it in advance where, although the tour operator was unable to perform, the tour operator had not notified the passenger of that fact. The policy would not therefore fulfil its intended purpose. In any event the passengers were given notice by the Claimant in its letter dated 27 April 2009 of the fact that rendered performance by HICL impossible, namely, the sale of Hebridean Princess.
20. To say that the Claimant’s submission fails to have regard to the reality of the situation, that the passengers got the cruises they booked, ignores the circumstance that the cruise the passengers got was provided by the Claimant whereas the cruise they had booked was to be provided by HICL. On the Defendant’s case a passenger who had no confidence in the Claimant to provide the cruise and so chose not to travel on the cruise provided by the Claimant would be unable to claim on the insurance because “the cruise” had been provided. That would be an odd result, inconsistent with the commercial purpose of the policy, and indicates that the provider of the cruise is part and parcel of the cruise and of the “declared trip travel arrangements”.

21. In my judgment therefore, and on the true construction of the policy, the “declared trip travel arrangements” were cancelled on 22 April 2009 when HICL disabled itself from performing them by selling Hebridean Princess.Loss

22. The passengers were entitled to be indemnified in respect of their net ascertained financial loss sustained arising from the cancellation of the cruises. In the absence of such financial loss there can be no claim.
23. Counsel for the Claimant submitted that the passengers lost their deposits or charges paid in advance because HICL was obliged to repay such sums on restitutionary principles and/or pursuant to Regulation 13 and, by reason of the insolvency of HICL, was unable to make such repayments.
24. Counsel for the Defendant submitted that the deposits and charges paid in advance were not lost in any meaningful sense because the passengers received the cruise they paid for and were not required to pay a second time for the cruise. The invoices sent out by the Claimant gave credit for the sums paid to HICL and so such sums were not lost. The commercial purpose of the policy was to ensure that the passengers were not out of pocket. They were not out of pocket and so there was no loss in respect of which the passengers required to be indemnified.
25. The Defendant’s argument has an attraction but I am persuaded that it is only superficial. There is no doubt that HICL was obliged to repay the deposit and other charges paid in advance to the passengers. There is also no doubt that HICL was unable to make such repayments. It follows that the passengers lost those deposits and other charges paid in advance because they could not recover them from HICL. It is true that, as a result of entering into an agreement with the Claimant on the terms of the Claimant’s letter dated 27 April 2009, the passengers can be said, ultimately, not to have been out of pocket. There are, however, at least two reasons why that agreement cannot properly be said to have cancelled out the loss. First, the claim for repayment is a claim in restitution or debt and the duty to mitigate does not apply to such claims. Second, immediately prior to making that agreement the passengers had lost their deposits and other charges paid in advance and could have claimed under the policy in respect of that loss. In entering into that agreement the passengers bargained with that claim in order to obtain the right to go on a replacement cruise operated by the Claimant. Such bargaining does not cause that right to be lost because the agreement is properly regarded as res inter alios acta; see Haviland v Long [1952] 2 QB 80 per Somervell LJ at p.83 and Denning LJ at p.84. That case was analogous to the present case. A landlord had a right to recover damages from a tenant for breach of an obligation to keep and leave the premises in repair. The landlord entered into a fresh lease with a new tenant who paid the full economic rent and agreed to carry out the repairs in return for the landlord undertaking to reimburse the new tenant from the damages recovered from the old tenant. The Court of Appeal rejected the submission that the landlord could not recover damages from the old tenant because, as a result of the agreement with the new tenant, he had suffered no loss. I therefore do not consider that the benefits obtained from the agreement between the passengers and the Claimant should be regarded as eliminating the loss which existed immediately prior to that agreement.
26. In my judgment, the passengers have sustained a loss within the meaning of the policy.Completing a claim form

27. The policy did not contain an express term requiring the passenger to complete a claim form. However, it was submitted on behalf of the Defendant that condition 2(c) of the policy, which required the passenger to prove their loss to the reasonable satisfaction of the insurers, implicitly required the passenger to complete a claim form because it was only by that being done that the insurer would be able to ascertain whether the passenger had some other policy which indemnified against the loss in question, in which case the loss would be excluded by the terms of the policy, in particular exclusion 3. If this were not done the loss could not be satisfactorily proved to the reasonable satisfaction of the insurers who could not be expected to pay until reasonably satisfied of their obligation to do so. It was said that the result of not submitting a claim form was that the claim in question could not be advanced. It has been agreed between the parties that the value of claims attributable to those assignors who did not submit claim forms is £489,056.50.
28. I do not accept this submission. Clause 2(c) requires the passenger to prove his loss. It does not require the passenger to complete any particular claim form or to prove that his loss is not within an excluded category of loss. In this case the loss has been proved. It has not been said that that loss has not been proved to the reasonable satisfaction of the Defendants, save by reference to the second and third points of principle which I have determined in favour of the Claimant.

29. In argument counsel also relied upon clause 2(d) which required the passenger to assist in the assessment of any claim by producing for inspection all books and documents and giving all information and explanations which are reasonably necessary to establish and assess indemnity hereunder. However, there was no plea that a request for assistance had been made pursuant to clause 2(d) and refused by any passenger. In those circumstances it is unnecessary and inappropriate for me to say anything about clause 2(d).Conclusion